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Debt Repayment Scheme

Introduction to the Debt Repayment Scheme in Singapore

In Singapore, the Debt Repayment Scheme (DRS) is an alternative to bankruptcy. It is a pre-bankruptcy procedure that aims to provide a favourable solution to the debtor and the creditors by avoiding a formal bankruptcy order.

Debt Repayment Schemes are governed by Part 15 of the Insolvency, Restructuring and Dissolution Act (IRDA) 2018 and IRDA Regulations 2020. The court has jurisdiction to refer a bankruptcy application to an Official Assignee (OA) to determine the debtor’s suitability for a Debt Repayment Scheme when specific criteria are met.

Under a DRS, the debtor and the creditors work with the OA to establish a repayment plan that ensures that the interests of the debtor and creditors are protected.

While traditional bankruptcy proceedings have many long-term negative financial and lifestyle implications for the debtor, it also comes with potential costs for creditors. Often, creditors don’t fully recover the debt owed to them when a debtor is declared bankrupt. The Debt Repayment Scheme aims to offer a better solution for all involved.

This article will discuss how and when a debt repayment scheme is an appropriate alternative to bankruptcy. It will look at the consequences of DRS, the debtor’s responsibilities, and how you come out of a DRS.

What is the Debt Repayment Scheme?

In short, the debt repayment scheme is a well-regulated plan for the debtor to repay creditors under the supervision of the Official Assignee. The debtor remains in possession of their assets, continues to engage in business transactions and build towards a stable financial future. The supervised repayment scheme ensures that creditors receive regular repayments towards the amount they are owed.

Unlike in bankruptcy procedures, the debtor’s assets are not liquidated. Rather than taking ownership and control over the debtor’s assets, the OA monitors and supervises the repayment of debts in DRS cases.

Once formal DRS proceedings are in place, unsecured creditors will not be able to take legal action against a debtor without express permission from the court. Unsecured creditors refer to those who have no claim or security against a debtor’s property. The DRS repayment schedule will see that these creditors are repaid over a fixed period rather than laying claims against a debtor’s assets in court.

Who qualifies for a DRS?

In Singapore, a Debt Repayment Scheme is available to any debtor who:

Does not have debt of more than $150,000;
Is employed at the time of assessment, earning a stable income;
Has not been declared bankrupt in the previous 5 years;
Is not currently in any DRS;
Has not been in a DRS during the last 5 years;
Is not the sole owner of a business; and
Is not a partner in a partnership.

If the debtor meets all the eligibility requirements, a court-appointed OA will assess the matter to consider if a DRS is a suitable option for all involved.

Can a debtor apply for a DRS?

No, a debtor cannot apply directly for a DRS. The DRS process is initiated when an eligible debtor or a creditor files for bankruptcy. The court may then decide to refer the matter to the OA to assess whether the debtor is suitable to enter into a DRS. Debtors can apply to have the bankruptcy proceedings adjourned for up to 6 months while the DRS application is reviewed.

If an OA finds the debtor not eligible for DRS after evaluation, the bankruptcy application will go ahead in court.

How does the DRS process work?

After either the debtor or a creditor has filed for a bankruptcy application, the debtor will attend a hearing. The case will be adjourned, and the court will appoint an OA. The OA will then begin an assessment of the debtor to determine if they are suitable for a DRS. If a debtor is eligible for DRS, the OA will require the following documents to make an assessment:

Statement of financial affairs;
Income & expenditure statement;
Proposed debt repayment plan;
Affidavit verifying the statement of affairs;
Supporting affidavit and documents; and
Debtor’s/creditor’s bankruptcy application.

The assessment can take up to 6 months. The debtor must then meet with the creditors, and the OA to discuss the proposed repayment scheme and agree upon the repayment terms. If the plan is approved, the debtor will make payments to the OA, who will distribute payments to the creditors over a fixed period until all debts are repaid.

What are a debtor’s responsibilities under a DRS?

In addition to fulfilling the repayment obligations per the agreed-upon schedule, a debtor must adhere to the following:

Inform the OA of all property owned;
Disclose any disposal of property within the 5 years before the start of the proceedings;
Attend all meetings arranged by the OA between the creditors and the debtor;
Not enter into further debt exceeding $1,000 without disclosing your DRS status to the lender;
Keep the OA informed of their place of residence and all requested contact details;
Inform the AO of any change in employment details;
Provide all information truthfully as and when requested by the OA;
Verify that the proof of debts filed by creditors is accurate and correct;
Do not make any preferential payments to any creditors; and
Comply with instructions from the OA on all matters relating to the DRS proceedings, including updating your income and expenditure statements.

When does the DRS come to an end?

Once all debts covered under the DRS are repaid in full in accordance with the DRS agreement, the OA will issue a Certificate of Completion. The certificate releases the debtor from all debt covered by the DRS.

What happens if the debtor fails to comply with the terms of the DRS?

If the debtor fails to comply with the repayment terms of the DRS or fails to comply with the debtor’s duties, the OA may issue a Certificate of Failure. The creditors may then initiate fresh bankruptcy proceedings against the debtor.

What are the costs involved with Debt Repayment Schemes?

Other than fees payable at the initial application and submission of the documents, the Official Assignee will charge fees for the administration of your DRS proceedings. These fees include:

An annual fee: S$300 per year for the first two years and S$350 per year for the next three years;
S$250 for creditors meetings;
Collection fee: 1,5% of the total amount paid by the debtor; and
Distribution fee: 3% of the amount distributed to creditors.

What are the long-term effects of the DRS on debtors?

A debtor’s DRS status is part of the public record. While it doesn’t have negative long-term implications in the way bankruptcy does, this may affect how future creditors conduct business with them.

What happens if the debtor misrepresented the facts?

The OA has the right to revoke the Certificate of Completion if the debtor failed to disclose debts or misrepresented facts that led to the approval of the DRS. In such a case, the OA will issue a Certificate of Failure that creditors can use to file new bankruptcy charges against the debtor.

Why is DRS better than bankruptcy?

The Debt Repayment Scheme (DRS) offers debtors a significant amount of freedom as compared to bankruptcy. DRS gives the debtor the opportunity to work their way out of debt towards a stable financial future and avoid many of the formal, long-term implications and stigma of bankruptcy. DRS preserves the debtor’s reputation and public image.

Similarly, Debt Repayment Schemes come with benefits for the creditors. While bankruptcy proceedings can be costly for the creditors, DRS is far less expensive. Debt repayment may take longer to conclude, but the proceedings work towards creditors receiving the total amount owed to them. In many bankruptcy cases, full repayment is simply not possible as the assets owned by the debtor do not cover the total debt amount.

To conclude, a Debt Repayment Scheme is a very useful option when you find yourself in a situation where you struggle to repay your debts. A DRS allows you to pay off your debts that you can afford whilst avoiding the restrictions that come with the legal status of bankruptcy.

If you want to find out about the Debt Repayment Scheme, you should consult with a lawyer who specialises in bankruptcy and insolvency. You should understand the law and the consequences before making any decisions affecting your financial future.

Declaring Bankruptcy in Singapore

Bankruptcy

What is bankruptcy in Singapore?

Bankruptcy might be the first thing you think of when you realize that you can’t keep up with your bills and debts. It might even be the right solution for you. But, before declaring bankruptcy, you should know your options, how the bankruptcy process works and how it will affect you and your family. So, let us help you decide whether you should file for bankruptcy by explaining what bankruptcy in Singapore is about.

In Singapore, a debtor can voluntarily file for bankruptcy if they owe and cannot repay debts of at least S$15,000. The debtor’s creditors can also make the debtor bankrupt by filing the bankruptcy papers in court.

If the debtor is declared bankrupt, their assets (except for their HDB flat) will be sold, and the proceeds put into a bankruptcy estate.

For most bankrupts, the bankruptcy estate is typically managed by the Official Assignee (OA). However, if the debt is extremely substantial, the creditors may appoint a private trustee in bankruptcy (PTIB), an accountant or lawyer, to manage the bankrupt.

Specialist Bankruptcy Services

At PKWA Law, we specialise in guiding individuals through self-filed bankruptcy with a proven track record

We act for clients who are saddled with debt and creditors and need bankruptcy protection. Our clients benefit from our expert guidance and transparent, reasonable fees. We provide clear insights into the bankruptcy process in Singapore and help you decide if it’s the best option for your financial situation.

PKWA Law acted for the Nominee to successfully seek bankruptcy protection under the Bankruptcy Act for two directors of TT International Ltd, a company listed on the Main Board of the Singapore Exchange Securities Trading Limited. This allowed the directors to resolve and restructure their personal liabilities of about $51 million arising out of corporate guarantees they had executed in connection with its debts.

Why File for Bankruptcy?

You can voluntarily file for bankruptcy in Singapore if:

There is a low likelihood that you’re able to repay your debts in full.
You cannot agree with your creditors to repay the debt.

Once you are bankrupted, your debt is frozen, and the interest is frozen. You will be required to make a substantially lower monthly repayment to the Official Assignee. Creditors are not allowed to sue you. You will get tremendous respite and peace from the relentless pressure of trying to pay your debt every month.

Bankruptcy is designed to protect the debtor

Nowadays, bankruptcy is no longer viewed in a very negative light. On the contrary, being bankrupted is now seen as a sensible thing to do, especially if the debtor is desperate and has exhausted all avenues to repay his debt.

Bankruptcy is now viewed as a sensible thing to do because:

First, it stops your debts from accumulating by stopping further interest charges on your principal sum owed. This effectively freezes your debt.
It provides you with an alternative and more forgiving payment plan. This means payments are likely to be more manageable than before when you were likely struggling to pay month to month.
It protects you from being sued for your debts.

How many bankruptcies are there in Singapore?

Between 2016 and 2018, figures from the Law Ministry’s Insolvency Office website showed more than 1,600 bankruptcy orders were made annually. However, in 2019, Bankruptcy orders dropped more than 40 per cent to 965.

Pre-Covid-19, the law allows a debtor 21 days to pay up on a statutory demand for an amount of at least $15,000. However, due to the COVID-19 situation, the Singapore government has temporarily raised this threshold to S$60,000 until 30 September 2020. As a result, this law has expired, and the threshold for bankruptcy is now restored to $15,000.

How many undischarged bankrupts are there in Singapore?

As of Dec 31 2020, there were 10,269 undischarged bankrupts.

What are the requirements to file for bankruptcy?

You or your creditor can file for bankruptcy if the following requirements are met:

Your debt is at least $15,000, it is due immediately, and you cannot pay it.
You are domiciled in Singapore.
You have a property in Singapore.
You have been ordinarily resident in Singapore for at least 1 year.
You have had a place of residence in Singapore for at least 1 year.
You have carried on business in Singapore for at least 1 year.

How bankruptcy affects you

Here are some ways in which bankruptcy will affect you:

You cannot leave the country without the OA/PTIB’s permission.
You cannot hold public office.
You cannot be a company director without the approval of the OA.
You cannot Sue any party in court (except for personal injury or matrimonial proceedings) without the OA’s/PTIB’s approval.
Your Bankruptcy will be entered into Singapore’s bankruptcy register, which anyone can freely search.
You can continue to work, but not in high positions
Your Credit score will be affected

How much does it cost to file for Bankruptcy?

Any creditor or debtor who wishes to file for bankruptcy must pay a deposit of $1,850 to the OA to administer the debtor’s estate.
If you are filing for self bankruptcy, the deposit will not be refunded.

What happens after you have been declared bankrupt?

After the Bankruptcy Order is made, you will be required to go to the OA’s office. The OA will brief you on your responsibilities as a bankrupt. You will also be asked to submit a Statement of Affairs to the OA.

The OA will also discuss with you your monthly contribution plan.

What happens to your assets?

All your assets will vest in the OA, which means that you no longer own your assets, and they all belong to the OA now. Therefore, you cannot sell your assets or deal with them as though you still own them.

However, some assets are considered protected assets and will be excluded from the bankruptcy estate. The most significant protected asset is your HDB flat. It cannot be sold to pay off your debts.

Will you be able to work?

A bankrupt can continue to work. However, part of their wages will be deducted and paid to their bankruptcy estate.

However, a bankrupt is not allowed to manage a business or act as a company director unless the court or the OA has granted prior permission.

Responsibilities of a Bankrupt

Once you are declared bankrupt, you will have the following responsibilities:

First, make full and frank disclosure of all your assets to the OA.
Disclose all and property that you disposed of before the bankruptcy.
Making monthly contributions to the bankruptcy estate to pay off creditors.
Keeping the OA informed of your place of residence and contact details
Attending any meeting with the OA.

Restrictions on a bankrupt

The restrictions on bankruptcy include:

You cannot Commence legal action against another person, except on the grounds of personal injury suffered by yourself or divorce.
You cannot travel out of Singapore without the OA’s permission;
You cannot borrow more than $1,000 without informing the lender that you are bankrupt;
You cannot be a director of a company without the permission of the OA or the High Court.

What is the Green Zone and Red Zone?

Once bankrupt, you must co-operate fully with the Official Assignee. The OA will decide whether you go into the Green Zone or Red Zone. Getting into the Green Zone means that you have been cooperative and have paid your monthly instalments on time. This enables you to be granted travel out of Singapore and be assessed as a suitable candidate for a discharge from bankruptcy.

On the other hand, if you are placed in the Red Zone, you have not cooperated with the OA. As a result, you may not be permitted to travel, and your chances of getting discharged from bankruptcy will be diminished.

The job of the Official Assignee

Once an official Bankruptcy Order has been filed, you will meet with an Official Assignee (OA) whose job is to help you manage your affairs and distribute your assets and repayments to creditors as fairly as possible.

Specifically, the OA’s duties are three-fold:

To oversee the bankruptcy estate, by planning the monthly contributions to be paid, by selling your liquid assets to pay off the creditors and importantly, to determine your target contribution (the amount you need to pay back, determined at the start of your bankruptcy after taking into consideration your circumstances).
To manage your affairs, such as assessing your applications to travel overseas or defend or commence a court action.
To assist you in obtaining a discharge from bankruptcy, which the OA can recommend in the face of satisfactory conduct and adherence to monthly contributions.

How do you get out of bankruptcy?

There is no automatic discharge from bankruptcy in Singapore. However, you may get out of bankruptcy in these three ways:

Annulment of the Bankruptcy Order by full settlement or Offer of Composition or a Scheme of Arrangement;
Discharge by the High Court; or
Discharge by Certificate of the Official Assignee.

Alternatives to bankruptcy

There are 2 main options to filing for bankruptcy – making a Voluntary Arrangement with your creditors and having a Debt Repayment Scheme.

a. Voluntary Arrangement

Debtors may apply to Court for an interim order for a Voluntary Arrangement (VA). The VA is a negotiated debt settlement under Part V of the Bankruptcy Act. The debtor discloses his assets and liabilities and proposes how to settle his debts with various creditors. If the proposal is accepted by the creditors and implemented successfully, it will benefit both the debtor and his creditors.

b. Debt Repayment Scheme

The Debt Repayment Scheme (DRS) is a repayment scheme to assist debtors with a regular income and debts not exceeding $150,000 to avoid bankruptcy.

A bankruptcy application triggers the DRS. When such an application is made to the High Court and the debt owed does not exceed S$150,000, the High Court may refer the debtor to the Official Assignee to assess the debtor’s eligibility suitability to enter into the DRS. If the debtor satisfies the relevant criteria, an administrator will devise a repayment plan requiring regular debt repayments to the creditors over a fixed period of time.

Seek help from PKWA Law bankruptcy lawyers

Please do not hesitate to contact us if you require assistance on bankruptcy or bankruptcy protection.